Prepaid cards are becoming a popular alternative to traditional checking accounts for many older adults because they can be cheap and easy to use. But there can be fees and downsides. Each card has a different policy, so it’s important to do your research so you can better manage and protect your money.

What is a prepaid card?

Prepaid cards are loaded with money in advance, and you generally cannot spend more than the amount on the card. There are many types of prepaid cards, including:

Federal government-issued cards such as Direct Express®, which was developed exclusively for people who receive federal benefits (e.g. Social Security, SSI, Veterans benefits)

Commercial prepaid debit cards, which typically carry a network logo (Visa, MasterCard, American Express, or Discover) and look like a normal credit or debit card

Gift cards from retail stores, which have a fixed amount and cannot be re-loaded with more money

With help from Bank of America and Money Management International, we developed the following tips on how to use, manage, and protect your government-issued and commercial prepaid debit cards.

Government benefits cards

1. Look closely at the fee summary.

Be sure to use your card wisely and avoid fees whenever possible.

2. Use an ATM in the Direct Express® card network.

For ATMs in the Direct Express® card network, your first withdrawal is free and later withdrawals have reduced fees.

3. Make store payments with your Direct Express® card.

You can avoid ATM fees by paying for purchases in stores with your card.

4. Get cash back for free in stores.

When you make a purchase using your PIN number at grocery stores and many other places, you have the option to get cash back for free.

5. Get cash from certain banks free-of-charge.

You can go to any bank or credit union that displays the MasterCard acceptance mark and get cash from a teller free-of-charge.

Other prepaid cards

6. Consider using prepaid cards as an alternative to a checking account.

Prepaid cards are popular with lower-income households, seniors, and young people learning to manage money because they can sometimes be cheaper and easier than traditional bank or credit union accounts.

7. Understand your options.

Make sure you know the fees and costs of prepaid cards, and comparison shop cards as you would any purchase.

9. Check your card agreement to see what fees apply.

At some stores, when you pay with a prepaid debit card, you may have the option to choose whether to run the card as “credit” or “debit.” Some prepaid cards charge you a higher fee if you choose debit, so check your card agreement to find out what your card’s fees are. The money will come out of your prepaid card account either way.

10. Contact the card provider right away if your card or PIN is lost or stolen.

Your rights to recover money taken from your prepaid card account depend on what type of card it is, what your contract promises, and how quickly you report the loss after you discover it. Generally, payroll cards and government benefits cards are protected under the same rules that protect your bank debit card. The federal Direct Express® card provides similar protections by contract. Network-branded (MasterCard or Visa) prepaid debit cards usually give some protection, but you should check your card provider’s website to find out the specifics. If the card that was lost or stolen was a gift card for just one store or retail group, your ability to recover any money will depend on the retailer’s policies and on whether you registered the card.

11. Don’t use prepaid cards for gas, hotels, or rental cars.

Sometimes when you use your prepaid card at a gas station, hotel, or rental car agency, you will see an additional charge above what you spent. This is called a temporary hold. Because your purchase may take a few days to process, the temporary hold ensures you still have enough money to pay for it. Once the transaction is processed, they will remove the temporary hold, and you will be able to use the rest of the money on your card. Do not use prepaid cards to purchase gas at the pump or for hotels or rental cars. If you do, you may find you will not have access to more funds than the purchase for a long period of time.